Meta is Leading the AI Revolution.
Q4 2024 ER Digest
Note: I’ll be uploading Spotify videos later this week, when I’m back in the office.
Edited by Brian Birnbaum and an update of my original Meta deep dive.
Meta has turned its core business into an AI-innovation machine. This will likely pay notable dividends over the next five years, continuing a trajectory that’s seen the stock rise over 600% since 2022.
Back in 2022 the market thought Meta had lost its way. But in my 2022 Meta deep dive I explained why it was making the right investments to maximize long-term value creation - the stock is now up over 600% since.
The world thought Meta was betting the house on the Metaverse–but most of its CapEx was being directed to AI capabilities within its Family of Apps. And following the release of Apple’s ATT (app transparency tracking framework), Meta was also focused on shifting its business towards commerce, as depicted below.
Meta’s app is now much more addictive thanks to AI. For instance, back in Q3 2022, Reels were shared 1B times a day on Instagram–presently, Reels are shared over 4.5B times per day across Meta’s entire Family of Apps, a 450% increase in just over two years. Meta’s achieved far more control over its monetization capabilities by pointing their ads to a messaging API via which businesses can interact with potential customers directly on the platform.
Meta’s Advantage+, the above architecture’s key monetization feature, is now at a $20B annual revenue run rate and up 70% YoY. It now accounts for roughly half of Meta’s quarterly revenue, which came in at $48.4B in Q4 2024. It’s safe to say that Meta has succeeded in transitioning from its legacy ad operation to one focused on accelerating commerce, which it more fully controls. Such a shift marks an evolution light years beyond what the market consensus (back in 2022) had envisioned. Other instances of Meta’s evolution include shifts from:
Desktop to mobile.
Posts to stories.
Friend’s posts to AI-recommended posts.
In the graph below, you can see how Meta’s free cash flow per share has now gone far above 2022 levels as a result of the aforementioned AI investments and ad infrastructure evolution. Meta stock is now 6X higher than when I wrote my original deep dive, highlighting the asymmetry presented to investors back then.
As is the case with Amazon, Meta will enjoy plenty of upside by continuing to execute its present strategy. For instance, Threads now has more than 320 million MAUs and is “on track” to reach 1B users. Indeed, the same organizational ability that enabled Meta to increase Reels shares by 450% in just over two years will also likely take Threads to over 1B users. It all comes down to optimization of user experience, where Meta excels.
Monetization stems from this same organizational ability, making quite appealing the odds of Meta successfully monetizing Threads once it goes past 1B users. Monetization occurs only after they surpass 1B MAUs–standard practice for Meta–because, as I’ve said many times in the past, scale precedes profits in the network-defined-economy.
Family of Apps revenue is up 55% YoY, while 76% of Meta’s total expenses were directed to this segment. Meta therefore continues to reinvest most of its capital into its core business and thereby de-risking the Metaverse endeavor. As I highlighted in my original Meta deep dive, the accretive nature of Meta’s AI investments yields additional capital that can be shunted into riskier bets. By definition, this optionality keeps Meta on the asymmetric pick-list.
In my Q3 2022 Meta update I describe how AI had already been driving incremental time spent on the platform. In Q4 2024, AI continues to drive users, with time spent on video across the platform up “double digits” YoY. This means two things:
AI is driving real productivity gains within Meta, which is likely a taste of things to come for the broader economy.
Every dollar Meta invests into AI pays dividends beyond increased engagement, per management’s excellent capital allocation.
Zuckerberg and company have demonstrated an extraordinary ability to deploy capital, including the purchase of Instagram and Whatsapp for $1B and $16B, respectively. Most impressive about Zuckerberg in 2022 is that he was investing vast amounts of capital into AI datacenters when LLMs had yet to take off. It’s almost like he predicted the future in some way, which you can see in the CapEx explosion from 2021 to 2022:
Every dollar Meta invests into AI produces both direct and indirect returns; and every dollar each of these direct and indirect bets returns is then reinvested back to produce further asymmetries. For instance, Meta’s AI investments have led to increased engagement on the Family of Apps and 700M MAUs on Meta AI, the latter of which develops advanced artificial intelligence models and tools for applications in social media, virtual reality, and research.
The advancements from Meta AI drive engagement with the Family of Apps, which yields more capital to reinvest in the AI effort–and so forth. Going forward I believe this flywheel is going to give way to AI innovations that will change the world. And much like Amazon, Meta stands to create more value from AI innovations over the next five years than it has created to date since inception.
In his prepared remarks, Zuckerberg stated that he sees Meta bringing two major innovations to market in the coming years: personalized AI assistants for the masses and an AI engineering agent on par with a mid-level engineer.
See his remarks about AI personalization during the Q4 2024 call:
We have a really exciting roadmap for this year with a unique vision focused on personalization.
People are going to get to choose how their AI works and what it looks like for them. I continue to think that this is going to be one of the most transformative products that we’ve made. And we have some fun surprises that I think people are going to like this year.
And regarding an AI engineer, he said:
I also expect that 2025 will be the year when it becomes possible to build an AI engineering agent that has coding and problem-solving abilities of around a good mid-level engineer.
And this is going to be a profound milestone and potentially one of the most important innovations in history, as well as over time, potentially a very large market. Whichever company builds this first I think is going to have a meaningful advantage in deploying it to advance their AI research and shape the field.
So that's ano ther reason why I think that this year is going to set the course for the future.
As with companies like Palantir and Duolingo, Meta’s AI innovations are made possible by proprietary data. Unique data allows them to train AIs no one else can. Thus, so long as the company continues to reinvest most of its capital into the Family of Apps, I believe the aforementioned flywheel will continue spinning. Meta stock is down over 12% from the all-time highs, but long term I believe its market cap will go much higher as its network continues to grow and serves as a factory of asymmetric AI bets.
I teach the mental model behind my 2022 Meta call in depth in my Tech Stock Goldmine course. This is also the same mental model behind my 10X+ Palantir and 6X+ Spotify picks. My students love that, in under 2 hours, they get access to what it took me over ten thousand hours to learn.
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Until next time!
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